End of a decade - and what changes we've seen

FLAT BEER? Politics provides short term noise, but contrary to what commentators may have us believe, it's economics that exerts the greatest influence over markets. Meanwhile from today, a pub in Westminster is offering pints featuring foam faces of political leaders including Arlene Foster and Mary Lou McDonald

AS 2019 draws to a close, not surprisingly we are utterly inundated with politics and in particular the question of Brexit that has dominated for the past three years.

But while politics and the uncertainties that are engendered by the current political landscape dominate the news, in stock market terms it is really the business cycle that matters. Politics provides short term noise, but contrary to what political commentators would have us believe, it is economics that exerts the greatest influence over markets.

This year has been dominated by the long drawn out trade war between the US and China, with every development eagerly analysed to try and gain insight. We do not seem to be any closer to a solution and the truth is that investors view Wall Street as having the least to lose from a trade war, followed by Europe and then the emerging markets.

The other great debate has been global economic growth and where we are in the economic cycle. Contrary to many predictions, the largest stock market (the US) has continued its seemingly unstoppable rise. Over the past decade the S&P 500 has left most other markets for dead with a rise of almost 180 per cent.

This compares with a rise in the FTSE 100 of a mere 33 per cent in capital terms and Europe 52 per cent. This is clearly only part of the picture as the UK market has a much higher yield and therefore in terms of total return the disparity is not nearly as marked.

We have seen dramatic changes in world stock markets over the past 10 years: the re-emergence of the technology sector, for example, has had a dramatic impact, putting many of the more traditional sectors in the shade. This has clearly been a massive influence on the success of the US markets.

Another very noticeable change in investing has been the divergence away from purely geographic or asset class terms towards thematic investments. We have seen a dramatic increase in funds specialising in healthcare, financials, artificial intelligence etc, all of which invest on a global basis.

It has been a fascinating decade in terms of the breakdown of many traditional economic assumptions: negative interest rates were previously largely unknown. We are now seeing a low interest rate environment with inflation a distant memory and a high rate of employment (although some would dispute the figures as the whole nature of the labour market has altered). We have also seen a dramatic change from traditional monetary or fiscal policy with extensive quantitative easing on a global scale.

None of this means that we are facing a trouble-free future and the next decade remains as hard to predict as the last one. Business confidence remains key as it is a vital component of economic activity: falling investment saps productivity and limits potential economic growth and by extension, corporate earnings. Even with all this change many principals of investing remain unchanged: look to the long term with a widely diversified portfolio.

:: Cathy Dixon is a director at the Belfast office of Cunningham Coates Stockbrokers

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